Silver Futures Index $SILVER (SILVER)

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Silver prices attract attention for all the wrong reasons as they underperform gold
By: Neils Christensen | October 31, 2023

The gold market continues to attract new attention as prices hold the line around $2,000 an ounce; at the same time, silver is starting to appear on some investors' radars, but for less bullish reasons as the precious metal continues to underperform.

The gold/silver ratio also shows that the yellow metal maintains the upper hand in the marketplace. The ratio is currently above 86 points, well off its summer lows, which means that it now takes 86 ounces of silver to equal the value of one ounce of gold. The average ratio in recent history is between 50 and 60.

Analysts have also noted that gold continues to benefit from technical momentum after breaking solidly above its 200-day moving average. Meanwhile, this resistance level has been a cap for silver. Silver's 200-day moving average is at $23.889 an ounce and some analysts have said that the metal needs to see a clear break above $24 to attract new bullish interest.

Silver is also underperforming relative to gold in the near term. December silver futures last traded at $23.010 an ounce, down more than 1% on the day, while December gold futures last traded at $1,999.60 an ounce, down 0.30% on the day.

Commodity analysts at Commerzbank said that gold is outperforming silver because the yellow metal is seen as a more vital safe-haven asset in times of geopolitical instability.

"Clearly, silver is not profiting from the demand for safe havens to the same extent as gold," the analysts said in a note on Tuesday. "Industrial use accounts for somewhat more than 50% of total silver demand. As a result, the silver price tends to perform less well than the gold price at times of increased risk aversion and associated economic concerns."

Some economists have warned that Russia's ongoing invasion of Ukraine, coupled with renewed chaos in the Middle East from Israel's war with Hamas, will further strain the global economy.

Rhona O'Connell, head of market analysis at the StoneX Group, also said in her last market commentary that silver's industrial component could be holding back the precious metal.

O'Connell noted that silver's underperformance highlights risks for the gold market as well.

"Silver's reluctance to move underscores the fact that while investors are hedging against risk, the momentum to take gold into a new higher range is still not there, or silver would be more aggressively bullish," she said.

While safe-haven demand has provided solid support for both gold and silver, analysts note that the fundamental economic backdrop has not changed.

Although the Federal Reserve is expected to hold interest rates unchanged on Wednesday, the central bank is still expected to maintain its restrictive monetary policy for the foreseeable future. Some commodity analysts have noted that this continues to support a stronger U.S. dollar and higher bond yields, two significant headwinds for gold and silver.

While silver's momentum appears to be capped, some investors have said that it still remains an important value asset to watch. Some analysts have said that the green energy transition and exponential growth in solar energy continue to drive industrial demand for silver even as supply dwindles.

Analysts have said that this significant supply and demand imbalance supports a long-term uptrend in silver.

"While it remains a long way short of its all-time high (just below $50 in 2011), the metal is showing signs of life," said David Morrison, senior market analyst at Trade Nation. "It has just broken back above an upward-sloping trendline linking a succession of lows beginning in August last year. Back then, silver was trading below $18 per ounce and it's now 32% higher. One worth keeping an eye on."

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